If a lot is known about the historical figure, it is, I suggest, not a good idea to make stuff up that contradicts what is known. If little is known it is not unreasonable to speculate.

I love the way Christian Cameron weaves historical characters into his Persian Wars series of novels. His hero is a historical character but one about whom next to nothing is known, so he has woven for this man a complete biography, in the course of which he interacts with the more well known people of his day. These people do broadly what we know they did and are broadly the sort of people we believe them to have been and they provide the realistic background against which the fictional tale is told.

At the other extreme you have Michael Moorcock's novel 'Behold the Man' where what Christians believe to be history is very substantially rewritten. Not a task for the faint-hearted, that.

In my story 'Time's Winged Chariot' I gave Robespierre a new background but I didn't change what he did as a result.

And then of course, there's 'Braveheart' about which the less said the better.

Fred Saberhagen's short story Wings Out of Shadow ranks among my most favorite Sci-Fi stories. It is historically accurate and the story absolutely demands the characters. Original Star Trek's The Savage Curtain and Spectre of the Gun employ historical characters. Quantum Leap was all about historical characters and situations. Bill and Ted's Excellent Adventure details, among other things, what Genghis Khan might do in a modern sporting goods store.

As has been stated this has been done a few times with good results. I am reading two series with all types of historical characters, one even has a couple of made up ones like Dr Jekyll and Mr. Hyde. At the same time though do not follow the writers examples for both are on alt worlds.

But I believe that there is a whole genre, Historical Fiction, where historical people meet fake ones. There was an example of one of these given I believe

All Tim Powers writes is historical fiction, with magic and conspiracy blended into the gaps. He doesn't change the facts, and forces himself to work to the recorded facts.

Orson Scott Card played a little more fast and loose with the Alvin Maker series, which has oh so many cameos in it--presidents and painters and all sorts. But his is an alternate America, changed by the magic in it, so although everyone is recognisable, events may differ slightly.

If you're talking specifically as regards contest entries, well, worked out alright for me :) (though I concede that John Shuttleworth, whilst based on a real family, was an invented member of said family)